Two press releases put out within a half hour of each other Tuesday night offer hope that MF Global customers will get more of their money and sooner but raises additional questions regarding the process.
The MFGI trustee reported at 5:15 p.m. (CST) Tuesday that it has secured an additional $1.3 billion in customer funds that was held at Harris Bank. According to the statement, the trustee had previously identified the funds but only now has begun the process of returning those funds to the estate.
Shortly later CME Group announced that they were increasing their guarantee to the SIPC trustee to $550 million from $250 million in order to accelerate the return of MFGI customer funds. CME stated that the increase in its financial guarantee “is designed to increase the payout percentage from 60% to 75% in early December."
Trustee spokesman Kent Jarrell confirmed that the additional customer segregated funds secured from Harris put the total amount of customer funds secured at more than $5 billion. However, Jarrell added that has nothing to do with the shortfall and the trustee stands by its numbers. “We still stand by the $1.2 billion shortfall. We told the court today $1.2 [billion], at the same time we told them about Harris Bank.”
This makes little sense as the amount of customer funds required to be segregated at MF Global at the time of the bankruptcy has been consistently reported to be just under $5.5 billion. CME reiterated that in its release and contends that the trustee’s recently increased estimate of the shortfall is incorrect. “While the final accounting of customer segregated assets and claims will occur in the bankruptcy process, CME Group is confident that recent reports of significantly larger customer segregated shortfalls are incorrect,” the release stated.
CME noted that its guarantee brings the amount available for disbursement up to $4 billion "of the $5.5 billion that was supposed to be held by MF Global in segregation."
That does not take into account the additional funds secured by the trustee. If the $5.5 billion denominator is correct than means that all but about $400 million has been secured. Commenting on this Jarrell said, “We’ll see. We will see when it is all reconciled, we stand by our numbers.”
He added that it will not change their distribution because prior to securing adition funds they had just enough to disburse 60% to all customers. Jarrell added that there may be addition interim payments. “As soon as we have money and it is responsible to return it, we will return it.”
The trustee acknowledged the additional CME guarnatee in a release following that announcement but did not indicate that it would immediately increase the amount it would pay out to customers. "We appreciate the press release issued by the CME offering an additional guarantee, ... The Trustee continues his effort to get a 60% return of property to customers as quickly as possible," the release stated, while adding, "we hope additional interim payments can be made to customers in a responsible manner under controlling law and regulation."
NOT ALL GOOD NEWS
All the news out of the trustee on Tuesday was not good as it appears that customers who liquidated their accounts on Oct. 31 and later--during the period CME Group and other exchanges placed MF Global accounts on liquidation only--may not be eligible for the "cash only" liquidation process approved last week and already under way.
According to Susan Osmanski, compliance consultant for CCS Capital Management who is working with the Commodity Customer Coalition, trustee lawyers insist on leaving out those customers who liquidated positions on the 31st or later. So those customers will need to wait to make their claims. Osmanski attributes this on the trustee's lack of understanding as any trade completed would have had to be matched and cleared by the exchange. "Just because MF Global imploded doesn't mean the whole system is corrupted," she says. "These customers were acting prudently and professionally and now they are being punished."
She adds that because some trades executed Sunday night hit the books the following day that customers who closed out positions on Sunday Oct. 30 may also be affected.
It is unclear whether the addition of $1.3 billion in customer funds would immediately affect this group of customers.